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Futures hedging: Multivariate GARCH with dynamic conditional correlations (in Russian)

Author

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  • Alexei Kolokolov

    (Plekhanov Russian University of Economics, Moscow, Russia
    University of Rome 'Tor Vergata', Rome, Italy)

Abstract

This article studies modeling dependence between futures and spot prices of financial indices and verifies a practical value of econometric models for futures hedging using Russian and foreign data. The dynamics of futures and spot prices is described by an error correction model, while volatilities and correlations are modeled by various multivariate GARCH models with dynamic conditional correlations of different degree of detail. The empirical investigation carried out in the article can answer questions on effectiveness of hedging strategies based on multivariate GARCH models, on similarities and differences of dependencies between futures and basic assets in Russian and foreign financial markets, and on a reasonable degree of detail in multivariate GARCH modeling.

Suggested Citation

  • Alexei Kolokolov, 2011. "Futures hedging: Multivariate GARCH with dynamic conditional correlations (in Russian)," Quantile, Quantile, issue 9, pages 61-75, July.
    • Handle: RePEc:qnt:quantl:y:2011:i:9:p:61-75
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    Cited by:

    1. Vladimir Habrov, 2012. "Optimization of portfolio management based on vector autoregression models and multivariate volatility models," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 28(4), pages 35-62.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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